Research / BFI Working Paper•May 20, 2019

Wrestling with Uncertainty in Climate Economic Models

Lars Peter Hansen, William A. Brock

This paper uses insights from decision theory under uncertainty to explore research challenges in climate economics. We embrace a broad perspective of uncertainty with three components: risk (probabilities assigned by a given model), ambiguity (level of confidence in alternative models), and misspecification (potential shortfalls in existing models). We survey recent climate science research that exposes the uncertainty in climate dynamics that is pertinent in economic analyses and relevant for using models to provide policy guidance. The uncertainty components and their implications for decision theory help us frame this evidence and expose the modeling and evidential challenges.

More Research From These Scholars

White Paper • Apr 10, 2020

Using Quantitative Models to Guide Policy Amid COVID-19 Uncertainty

Lars Peter Hansen
Topics:  COVID-19
BFI Working Paper • Jul 8, 2020

Uncertainty and Decision-Making During a Crisis: How to Make Policy Decisions in the COVID-19 Context?

Loïc Berger, Nicolas Berger, Valentina Bosetti, Itzhak Gilboa, Lars Peter Hansen, Christopher Jarvis, Massimo Marinacci, Richard D. Smith
Topics:  COVID-19, Monetary Policy
BFI Working Paper • Mar 17, 2022

Asset Pricing under Smooth Ambiguity in Continuous Time

Lars Peter Hansen, Jianjun Miao
Topics:  Financial Markets